How to Put up a Medical Marijuana Dispensary

Marijuana is a plant with several medicinal uses, including the treatment of chronic pain, nausea, and poor appetite and weight loss due to chronic illness.[1] While its medical use still causes controversy, many US states have legalized the sale and use of “medical marijuana” by licensed dispensaries, based on a physician’s referral. Although as of December 2014 federal agents will no longer raid medical retail dispensaries[2], the sale of marijuana is still technically illegal at the federal level[3]. This means that the legality of establishing and running a medical marijuana dispensary is a complicated issue that needs to be carefully navigated. Producing and selling marijuana in these dispensaries has become a booming industry, but there are many things to keep in mind if you decide you want to set up your own.

Should I Start a Dispensary?

I understand my state’s medical marijuana laws.

I have contacted and confirmed that a specific bank will accept my money.

I recognize that certain future employers may stigmatize this endeavor.

I acknowledge the risks of operating a dispensary, which can still be shut down by the federal government.

I understand the high costs of transportation, storage, and security associated with medical dispensaries.

I am willing to file the paperwork and forms needed to make me a valid medical dispenser. I know I will be on file with the state government and in open public records.

I know that there are still laws regulating the sale of marijuana, and that I cannot simply sell openly with a license.

I understand that I will likely not turn a profit for my first six months.

Part1

Laying the Groundwork

1

Determine whether it is legal to establish a medical marijuana dispensary in your area. Many states have legalized the operation of dispensaries, but the laws also vary by county and city. Start with the Department of Health Services in your state, and then check with your municipal offices to be sure that you are allowed to legally operate a dispensary in your area.[4]

A full list of states where the sale of medical marijuana is legal is available from theNational Conference of State Legislatures. You can also find information at the Americans For Safe Access website.[5]

2

Research local zoning laws. Because a dispensary is considered a business, it will need to be located in a commercial zone. You will need to acquire the appropriate permits and other documents before proceeding.

In many areas there are also additional restrictions. For example, in many California cities it is also not permitted to open a dispensary within 1,000 feet of a child care center or pre-K-12 school; within 500 feet of a residential area; within 1,000 feet of a park or library; or within 250 feet of any adult business that sells “drug paraphernalia” (pipes, bongs, etc.).[6]

3

Decide whether you are a good candidate for running a dispensary. There is a significant level of risk involved in running a dispensary; in addition to the federal illegality, you may also face social stigma and difficulty with securing employees. Dispensaries are also a target for theft and vandalism.[7] While being your own boss may feel very satisfying, be aware of the risks and stress that opening a dispensary entails and decide whether it’s worth it to you.

Many states require background checks not only for the operator(s) of a dispensary, but also for all investors and owners. Prior felony convictions, as well as other drug-related charges, may disqualify you from being able to obtain an operating license.[8]

4

Seek training on growing marijuana, or hire an expert. Unless you are already an expert in the cultivation of marijuana, you will probably want to seek expert advice. Many dispensaries grow their own marijuana on site — in some states, it’s a legal requirement — so understanding how to run a growing operation is crucial to your dispensary’s success.[9]

Growing marijuana shares some risks with other agricultural crops, such as pests, fungus and mold growth on plants, and poor harvests. Seasonal weather patterns and even the daily amount of sunlight can also affect your plants. You should thoroughly research the risks and necessary techniques for cultivating marijuana.

5

Hire a lawyer. Because of the unique legal situation medical marijuana dispensaries face, it’s important to seek professional legal advice before purchasing or opening a dispensary. A lawyer will also be able to help you secure the appropriate permits and licenses, and make sure you are in full compliance with all city, county, and state regulations.

For example, in some states you may be required to classify your dispensary as a “non-profit organization” [10]

The National Organization for the Reform of Marijuana Laws (NORML) maintains a list of lawyers experienced in marijuana issues.[11]

Part2

Setting Up Shop

1

Prepare a business plan. A business plan will help you find investors by providing them with a clear description of your company’s goals, assets, plans, and projections. Depending on the regulations in your area, you may choose to establish your business as a single proprietorship or as a corporation, or you may wish to form a collective or cooperative. In some areas, only collectives or cooperatives are legal. [12]This is one of the reasons it’s important to seek legal advice before trying to set up your dispensary.

The U.S. Small Business Administration offers a website full of resources and information on writing a business plan.

According to a survey conducted by See Change Strategy, a financial news and information firm, 24% of dispensary operators had difficulty securing financing from investors.[13] Banks are often reluctant to lend money to people wanting to open dispensaries.[14]

2

Secure the necessary funding. While costs vary depending on your location, start-up costs average about $250,000, but may range up to $500,000.[15] This figure includes various costs, including the application for a license (usually nonrefundable), securing a storefront, growing or purchasing product, insurance, and other expenses.[16]

Even with a good business plan, it may be hard to secure traditional financing, so be sure that you have enough assets to invest before you start. If the regulations in your area allow for it, you can also minimize your risk by investing with partners.

3

Hire a Certified Public Accountant (CPA). A CPA can help you navigate the financial side of your business. A CPA will know how to file the appropriate tax forms and can also manage your overall finances, including payroll.

Because marijuana dispensaries are still technically illegal at the federal level, they run a higher risk of being audited by the IRS. A good CPA will help protect you in the case that you’re audited.

4

Buy or rent a suitable place. Because dispensaries are a high-risk (if often high-profit) investment, many people prefer to rent property before buying. If you are renting, disclose that you plan to operate a dispensary on the property. Keep all local ordinances in mind when looking for a property.[17]

There are tools you can find online such as traffic pattern information, demographic data (household size, income, etc.), and traffic “generators” such as other businesses and recreational locations in the area. These will help you determine what location will receive optimal traffic for your dispensary.[18]

Part3

Growing Your Business

1

Maintain a respectable image. Dispensaries can face significant social and community pressure, and if you don’t maintain a respectable, friendly image, you may well find yourself out of business. Always be pleasant and respectful to your “neighbors,” and consider doing the following:[19]

Keep offensive or overly drug-related signs, symbols, and images out of your storefront.

Hire security guards to keep loiterers and thieves away and provide patients with a sense of security.

Network with local government and police offices. Let them know you have no criminal intentions and that you are a respectable, community-minded small-business owner.

2

Market your business. Many traditional media outlets, such as Facebook and Google, do not allow marijuana-based businesses to advertise with them. Instead, reach out to local doctors’ offices that provide referrals, and promote yourself on websites such as Hemp American Media Group.[20] And of course, build word-of-mouth through great customer service and quality products.

3

Conduct customer surveys. There are hundreds of varieties of marijuana and a wide variety of ways to consume it, including smoking, edible products such as brownies and dried flowers, and oils. While there aren’t many wide-scale, rigorously scientific studies available about what types and forms of marijuana are best for which conditions[21], your customers may have preferences or may have been told to find a certain type by their physician. Conducting some market research by doing surveys will help you stock the products your customers want the most of.[22]

4

Keep meticulous records. Because of the uncertain legal status of many dispensaries, it’s vital that you keep careful records not only of your expenses, but also of all of the product, who interacts with it at what growing and processing stages, and the patients who purchase it. This information will help protect you in the event that you encounter legal trouble.[23]

5

Be aware that health insurance does not cover medical marijuana. No health insurance company in the United States currently covers medical marijuana, so patients must pay out-of-pocket. This means you will need to price your product competitively (usually, between $20 to $60 for one-eighth of an ounce, or about three “joints”) to maintain repeat business.[24]